According to a study by Mercer, global salaries are expected to rise by an average of six percent in 2008, 1.9 percent above inflation, which may suggest a turning of the tides for outsourcing labour.

The study, involving 62 countries worldwide, shows a strong correlation between forecasted inflation and forecasted average pay increases, however there is a wide global variation in these projections.

India vs. North America and Western Europe   

While India is expected to have one of the highest pay increases in the world at 14.1 percent, nearly 10 percent above the local inflation, North America and most of Western Europe will experience the lowest salary increase (with Ireland predicted to experience the highest actual salary increase of 4.7 percent, as well as the highest above inflation at 2.6 percent). 

Steve Gross, worldwide partner and global head of broad based performance and reward consulting at Mercer, says that some multinational companies are experiencing a labour cost saving of 75 percent by outsourcing their labour to emerging markets like India. 
    
The problem with outsourcing labour

Although this might sound like a perfect option for keeping costs down within a company, Gross warns that outsourcing does have its problems as well.  He says companies that outsource generally need to invest more in employing supervisory staff and training, as well as inconsistency in service quality. 

“Immediate cost savings are no longer the only considerations as short term affordability might be offset by long term volatility in labour cost” and it is therefore “essential for multinational companies to consider both current pay levels and future salary increases when deciding where to source their labour,”  says Gross.

Where to turn next

Unlike Western Europe, Eastern Europe is showing us a different picture, with some of the highest pay increases in the world at an average of 6.9 percent.  However because inflation rates are also expected to remain high, 4.6 percent on average, the increase above inflation will be only 2.3 percent. 

Bulgaria is expected to see one of the highest pay increases in this region at 9.3 percent, with an expected inflation of 4.4 percent leaving the pay above inflation at a high 4.9 percent. 

Cameron Hannah, worldwide partner at Mercer suggests the increased activity in Eastern Europe is due to the, “strong multi-lingual skills, [its] proximity to Western European markets and the rapid escalation of salary levels in popular off-shore centres such as India.”

3 March 2008

[Mariah McKenna]

[Copyright Expatica 2008]